Canadian Bankers Association: Helping to support economic recovery

Dear PM Harper:
The Canadian Bankers Association congratulates all new and returning MPs and looks forward to working cooperatively with Canada’s new Parliament to ensure that our banking system remains strong, stable and secure.

The financial crisis brought home to Canadians the importance of having strong banks. They know that our banks didn’t fail, didn’t need a bailout, and helped get Canada through the economic downturn.

Today, as we head into the economic recovery but with uncertainty still out there, we need strong banks more than ever to help families buy a home, help Canadians save for retirement, help small businesses to grow and thrive, and help promote Canada’s brand internationally that this country is a great place to do business.

Having a strong, profitable and innovative banking sector is critical to supporting Canada’s economic recovery. Put very simply, you can’t have a strong economy without strong banks.

And to ensure we have strong banks requires a balanced policy and regulatory framework that provides, on the one hand, effective oversight but on the other hand, also lets banks get on with the business of serving their customers.

One area that some say is a problem requiring a regulated solution is credit card interest rates. Capping credit card interest rates at arbitrary levels would harm the very people that it is meant to help by reducing choice in the marketplace and reducing the amount of credit available.

The facts speak for themselves.

Millions of Canadians use credit cards and two-thirds of them pay off their card balance every month. That means they incur no interest charges for the convenience of having access to unsecured credit whenever they want. That’s why credit cards account for just five per cent of total household debt; because most people use cards as a payment tool rather than a credit vehicle.

Canadians who do carry month-to-month balances have more than 70 low-rate cards from which to choose to reduce their interest payments.

Competition and choice for consumers must continue to be the hallmarks of Canada’s credit card system, backstopped by existing Bank Act regulations requiring disclosure of rates and payments and plain language that consumers can understand.

A second issue that is of growing concern for our industry is the attempts by provinces to regulate the business of banking.

Let’s be clear, banking is a matter of federal jurisdiction. Even so, some provinces are trying to expand their regulatory reach into federal banking jurisdiction. Whether it’s on credit cards, consumer regulation relating to banks, or privacy laws, the list of provincial attempts to regulate banks is long and growing.

Efforts by provinces to regulate banking work against international standards that require strong and coherent bank regulatory regimes at the national level and they introduce unneeded inefficiency to our national economy. Furthermore such intrusions confuse consumers by creating inconsistencies and different standards of service across the country.

Another area requiring a great deal of attention today is global regulation of financial institutions.

Even though Canada’s regulatory system stood up better than most throughout the recent economic crisis, there is widespread recognition that strengthened capital and liquidity standards make sense for banks around the world. Banks in Canada need to be part of this global exercise and will adhere to the standards that emerge.

That said, while our banks were in better shape than others to deal with the new rules, the sheer volume and complexity of regulatory change has been nothing short of phenomenal and is ongoing. There is a tendency to think of the new regulatory architecture – Basel III and the Financial Stability Board standards – as yesterday’s story because the broad framework has been agreed to. Far from it – we are in the middle of the biggest implementation operations our members have ever experienced, and there’s more to come.

A particularly significant initiative underway is the work related to systemically important financial institutions – SIFIs – or “G-SIFIs” if you tack on the word “global”; “N-SIFIs” if you tack on the word “national”.

In our view, designating banks as SIFIs would have a perverse effect: it will increase regulatory burden on those entities and at the same time increase, not decrease, moral hazard because of the market perception that any entity designated as “systemically important” would never be allowed to fail.

Canada’s financial regulator understands these concerns. Unfortunately, the decision to proceed with designating SIFIs has been taken by international policy makers, so that horse has left the barn. The focus now has to shift to ensuring that the criteria used to determine SIFIs is appropriate and not based on overly simplistic measures – such as size by itself.

The danger here is over-shooting. We need to make sure that additional regulatory measures are balanced and don’t have unintended consequences on the rest of the economy. It is important, therefore, that Canadian officials act as a voice of experience and moderation when dealing with international standard-setters and when applying these rules in our domestic context.

At home and abroad our banks are recognized as best-in-class. But we cannot coast. In this still uncertain environment, the CBA will continue to work with policy makers and regulators to maintain the best banking system in the world.

Terry Campbell
President and Chief Executive Officer
Canadian Bankers Association

The CBA works on behalf of 52 domestic banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 260,000 employees. The CBA advocates for effective public policies that contribute to a sound, successful banking system that benefits Canadians and Canada’s economy. The Association also promotes financial literacy to help Canadians make informed financial decisions. www.cba.ca.